Have you just been approved for a mortgage? Congratulations! There’s still one last thing to do, however, before your loan becomes official: make an appointment with a notary. Under the Quebec Civil Code, mortgages on properties, such as houses or land, must be executed by notarial deed. This isn’t just a matter of procedure—a mortgage that doesn’t comply with this rule is invalid.
The notary: An impartial legal expert
Notaries are public officers and therefore impartial. They do not work for your financial institution or your broker. Their job is to clearly explain to you the various clauses of your mortgage and verify that it complies with the provisions of the law.
To ensure your safety and guard against identity theft, your notary will ask you for two pieces of identification at the appointment. They will also make sure that everyone who must consent to the mortgage is present at the signing and that they have the legal capacity to sign the documents. For example, if you own a condo with your spouse, your notary will not notarize the deed if your spouse is absent or refuses to sign.
The notary’s job isn’t simply to get you to sign the mortgage deed. Before meeting with you, your notary will carry out a title search on your property to ensure it isn’t subject to any charges, such as another mortgage or a notice of sale for non-payment of property taxes. This process protects your creditor, who can then be sure that your property is in good legal standing.
Once all parties have signed the mortgage deed, the notary will publish it in the land register. This means that even if you sell or give your property to someone, the mortgage will survive until your financial institution issues a mortgage discharge (a legal document that “clears” the mortgage).
Conventional mortgage or umbrella mortgage?
When you’re shopping for a mortgage, the interest rate and term are extremely important. Another element that has an impact on your finances is the security.
You usually have two options. You can take out a conventional mortgage or you can get a mortgage security deed, also known as an umbrella mortgage or collateral mortgage.
When you take out a conventional mortgage, you are only mortgaging your home against the amount borrowed. For example, if you buy a $400,000 property by putting down $80,000 and borrowing $320,000, your mortgage will be $320,000, the actual amount you borrowed.
If you ever want to refinance your mortgage to borrow against your property, however, you will have to make another appointment with the notary, which will involve certain costs. Among other things, you will have to pay the notary’s fee and the cost of publishing the deed in the land register.
Umbrella or collateral mortgages
Umbrella mortgages, or collateral mortgages, continue to grow in popularity in Quebec. Unlike a conventional mortgage, an umbrella mortgage covers the debt on your property as well as other current and future debts you may incur from your financial institution, such as debts related to a credit card or line of credit.
An umbrella mortgage gives you easier access to credit. For example, if you want to get a home equity line of credit to finance kitchen renovations, you won’t have to go back to the notary to sign a new mortgage. What’s more, you’ll save several hundred dollars in legal and administrative fees.
Loans secured by an umbrella mortgage also offer lower interest rates than most personal loans, so your monthly payments will be lower.
However, if you take out an umbrella mortgage, you should check your finances carefully before borrowing any additional amounts. If you borrow too much, your debt level will increase and you’ll end up having trouble paying your bills on time, which will affect your credit score. You’ll also have a hard time getting a loan from another financial institution.
Although an umbrella mortgage isn’t any more complicated to discharge than a conventional mortgage, you’ll have to cancel any credit cards or lines of credit tied to the mortgage before you can discharge it. Before you put your home up for sale, you should make sure the selling price will allow you to pay off all your debts.
Finally, if you take out an umbrella mortgage with your spouse, you may be required to pay off any debts they have that are tied to the mortgage, even if you were not previously aware of them. This type of situation occurs most often during a divorce or separation where the relationship between the spouses is strained. If you have a transparent relationship with your significant other, the chances of this happening are low. Note that this situation can also occur with other types of mortgages, since a mortgage cannot be divided between borrowing spouses.
Speak to your broker
Sometimes clients are unaware that they’re taking out an umbrella mortgage and only find out when they go to sign the mortgage deed with the notary. As a mortgage expert, your broker can explain the pros and cons of different types of mortgages and ensure that the product you choose is the right one for you.
- Calculated based on the actual amount of your loan, conventional mortgages generally require you to go back to the notary if you want to increase the amount of your mortgage loan.
- Umbrella mortgages make it possible to combine several credit products (loans, lines of credit, etc.) and to borrow more money without applying for a new loan. Although practical, umbrella mortgages require discipline to ensure you do not unnecessarily increase your debt level and make it more difficult to repay your loan.
- Your mortgage broker will make sure you get the mortgage that best suits your situation.